Management Accounting: Definition
Management accounting is concerned with preparing and presenting accounting information in such a way as to assist a firm’s management in designing policies, planning, and controlling the operations of the undertaking.
Management Accounting: Explanation
Management accounting uses both financial and cost information to advise managers in planning and controlling the organization. It provides information to persons inside the organization.
Management accountants produce dedicated reports to serve the needs of decision-makers. Past and current activities are reported to the extent that such information helps management to plan for the future.
Functions of Management
The functions of management are stated below:
- Laying down and classifying organizational objectives
- Defining policies to be pursued for achieving the objectives
- Prescribing strategies to be followed
- Planning business operations while keeping in view the company’s objectives, policies, and strategy
- Coordination of all activities so as to avoid bottlenecks (e.g., machinery and equipment in the various production departments should be well balanced)
- Execution of production, sales, and other important functions, thereby ensuring that organizational objectives are achieved
- Control over actual performance
- This control is achieved by comparing actual performance with plans, measuring deviations, identifying the causes of variances, and taking suitable corrective actions to eliminate weaknesses
- Daily, weekly, or monthly control is also achieved by issuing suitable instructions and guiding subordinates in all matters necessitating such approaches
- Revision of plans, policies, and strategies if the situation so warrants
- Long-term planning (e.g., for the next five years), ensuring that executives are well aware of the long-term directions of the business activities